Archive · 22 Aug 2026
India’s Airlines Face Fuel Risk Without A Hedging Buffer
Airlines need lots of fuel to fly planes, and fuel prices can change quickly.
Indian airlines usually do not protect themselves against these price changes by using hedges.
A hedge is like agreeing on a fuel price ahead of time.
Without one, airlines may have to pay much more when oil prices rise.
Fuel is already more expensive for Indian airlines because of taxes.
The country also does not have a strong market for buying jet-fuel protection contracts.
The government has created a fund that can help keep fuel prices stable for airlines.
The article says this may shift the risk from airlines to taxpayers.
It argues that India should build a better hedging market and require airlines to use carefully designed hedging plans.
McKinsey warned that rising fuel costs could increase global airfares by 20–25%.
ICRA estimates unhedged Indian carriers could lose Rs 36,000–38,000 crore this year.
Jet fuel represents roughly 40–50% of Indian airlines’ operating costs, compared with about 25% globally.
India lacks a liquid, long-term market for hedging actual jet-fuel prices.
The Cabinet approved a Rs 10,000-crore ATF Price Stabilisation Fund to cap fuel prices at Rs 115 per litre for up to three years.
- Who
- Indian airlines, the Indian government, fuel suppliers, and financial-market participants are involved.
- What
- The article examines Indian airlines’ lack of fuel hedging, the risks this creates, and proposed market and policy solutions.
- When
- The issue was highlighted in June during a surge in oil prices linked in the article to the Hormuz crisis; the government’s stabilization fund was approved recently.
- Where
- The issue concerns India’s aviation and commodity markets, with comparisons to airlines and markets abroad.
- Why
- Indian carriers face high jet-fuel costs and taxes, while they lack effective long-term instruments to protect against price increases.
Strategic Hedging
Hedging Skepticism
Whether airlines should hedge fuel costs
Strategic Hedging
Supporters argue that hedging can stabilize the fuel costs attached to tickets already sold, protect margins, and reduce the risk of severe disruption when prices rise.
Hedging Skepticism
Critics point to the management and accounting complications of hedging, previous losses experienced by Indian airlines, and the fact that some major American carriers currently do not hedge.
Who should bear fuel-price risk
Strategic Hedging
The article favors building a regulated jet-fuel derivatives market and requiring scheduled carriers to adopt board-approved, disclosed hedging strategies.
Hedging Skepticism
The government’s ATF Price Stabilisation Fund provides a public mechanism for stabilizing fuel prices, but the article argues this could leave taxpayers responsible for high oil prices and subsidize private airlines.
- Estimated Indian airline losses
- ICRA predicts losses of Rs 36,000–38,000 crore this year for Indian carriers that have not hedged fuel costs.
- Fuel share of operating costs
- Jet fuel accounts for approximately 40–50% of operating costs for Indian airlines, versus about 25% globally.
- Potential global fare increase
- McKinsey warned that higher fuel costs could raise airfares worldwide by 20–25%.
- ATF stabilization fund
- The Cabinet approved a Rs 10,000-crore fund intended to keep aviation turbine fuel at Rs 115 per litre for up to three years.
- Indian fuel taxation
- Aviation turbine fuel is outside the GST system and can face central excise and state value-added tax of up to 30% in some regions.
- Market concentration
- Two major airline groups account for nearly 90% of India’s domestic passengers, according to the article.
- Proposed reform
- The article recommends a cleared, margined jet-fuel risk market and board-approved hedging programmes disclosed and audited quarterly.